SALT LAKE COUNTY, UTAH
An innovative approach. That’s what advocates for early childhood education were missing. They had the data and could show the need, but it would take more than that to convince the Utah Legislature to fund preschool for at-risk kids.
They decided to use the Pay for Success model, where private investors take on the risk and are paid only when a social program succeeds: An ideal private-public partnership that could appeal to conservative lawmakers.
It turned out the idea was too novel for legislators, who rejected efforts to back the proposal. But that didn’t stop advocates. The United Way of Salt Lake and Salt Lake County financed the program themselves and hoped this would serve as proof of concept for the Legislature to step in after the first year.
A successful initial cohort and the attention derived from the innovative funding model changed lawmakers’ minds, and the Legislature now helps fund early childhood education.
This investment came to life in a Lincoln Elementary School classroom, as Tuffy the Turtle in his Tonka truck taught tykes their T’s — or at least teacher Dan Fetzer did, snapping and grousing as he voiced the surly hand puppet.
“What letter are we looking for?” Fetzer asked in his own voice. Two young girls shifted through bits of paper until they found the letter T.
“T,” they singsonged in unison.
“Put it in the truck,” Fetzer encouraged.
As they put the paper in the back of the Tonka, Tuffy came to life: “Don’t you throw trash in my truck!”
The girls exploded in giggles as Tuffy fumed.
Fetzer’s class is one of 78 classrooms in the Granite School District — the largest district in Salt Lake County and second-largest in the state — that are dedicated to early childhood education.
More than 100 languages are spoken in the district and almost 50 percent of students qualify for free or reduced lunch. Most of the faces looking up at preschool teachers here are Latino or black.
The 20 kids in Fetzer’s classroom are lucky. Almost 60 percent of the kids in Utah are never enrolled in preschool, and the state continues to trail in teacher pay and in per-pupil spending.
Utah is a conservative state, with chronically underfunded public schools and a pressing need for more access to preschool for children from low-income families.
When advocates in Salt Lake County looked at the obstacles before them, they realized that only by working together and coming up with creative solutions could they increase the number of children receiving high-quality early childhood education.
They came upon the Pay for Success model and the use of social impact bonds for funding — a way for private investors, not taxpayers, to shoulder the risk of investing in a social program and receive a return only when a measurable outcome was reached.
The innovative funding scheme was seen as likely to attract support as a win-win for investors and the children of Utah.
“It’s truly an example of collective impact at work, in that we had the private sector, the nonprofit sector, you had government, you had the education sector, we’re all around the table talking,” said Elizabeth Garbe, with United Way Salt Lake. “All so our kids who are most at-risk of later academic failure are at the start line when the race of life begins.”
Especially for disadvantaged children, attending high-quality pre-kindergarten can be a catalyst for success. Not only does it prepare them for kindergarten, but studies show that early childhood education is tied to later academic achievement, crime reduction and better overall health.
“In a fiscally conservative state like Utah, if you can show, like the research shows, that an investment in kids early on will give you dividends down the road, that should be all the argument you really need,” said Amy Ahrens-Terpstra, with United Way Salt Lake.
But while focusing on the economic benefits of early childhood education may be a winning argument, there were still cultural hurdles that needed to be overcome.
A changing population
Over 60 percent of the state’s residents are members of The Church of Jesus Christ of Latter-day Saints. That percentage is even larger in the 2019 Legislature, where nine out of 10 lawmakers belong to the church.
For many in Utah, early childhood education is considered a family responsibility, not something the government needs to get involved in.
“Growing up in Utah, in an LDS family, that was always my understanding, that was the ideal scenario, that the mom could stay home,” said Anna Thomas, a policy analyst with Voices for Utah Children.
“We know now, demographically, that Utah has more working mothers than just about any state nationwide, but our cultural expectations haven’t necessarily caught up. So, you do see older policymakers wondering, ‘Wait, why do we have to do this?’”
The increased diversity of the population is also not being taken into consideration, experts said. Although the state remains predominantly white, the growing minority population — and the need for special attention to those who are economically disadvantaged — is not being addressed.
Lawmakers also tend to come from more affluent backgrounds, Thomas said, and maybe don’t see the same need because their kids’ needs are being met outside of preschool.
It’s also a big political ask. While people care about education and understand it’s connected to economic prosperity, Utah is still a very low tax-burden state, she said.
“Politically, you will probably not be around to see the day that there are fewer correctional costs, fewer welfare benefits usage, less use of Medicaid,” Thomas said. “You won’t ever get to realize that, but you will be the person who spent all this money on this particular issue.”
Utah is among the lowest in per-pupil spending nationwide, and has been for decades. Teacher pay ranks among the lowest in the nation. Considering the cultural and political realities meant that asking the state outright to fund early childhood education was a futile effort, as previous efforts had stalled.
It was time for a different approach.
Pay for success
In 2005, the Granite School District received a $4.8 million Early Reading First grant from the federal government. The district took the money and expanded ongoing efforts to improve and standardize its limited preschool offerings.
“There was no state curriculum for preschool, no early childhood standards. Even within the district we had different programs doing different things,” said Nannette Barnes, director of preschool services for the district.
The federal grant gave the district the opportunity to adopt a curriculum and start tracking students’ progress. In 2010, the district partnered with United Way, Voices of Utah Children and Utah State University to conduct a longitudinal study of its high-quality preschool program.
Children in the program were evaluated, before and after they participated, using the Peabody Picture Vocabulary Test, in which a child listens to a word and then selects one of four pictures that best describes that word’s meaning. The test was used to assess the likelihood of future school success or failure.
The original research indicated that one-third of the low-income 3- and 4-year-olds tested, kids who had not yet attended preschool, would require remedial services. That figure was cut to 5 5% after these students received high-quality preschool in the district.
The study provided the kind of clearly-measured outcome that later made the Pay for Success approach a valid option when advocates sought to increase the number of kids using the program. The funding model uses private investors to provide the upfront costs, with the condition that they be paid back with a premium if the project is successful. If the project fails, it is the investors who lose the money.
In Utah, along with general per-pupil funding, special education is financed separately, said Garbe of United Way, which made it possible to identify a specific dollar amount the state would save on children who wouldn’t need remedial assistance.
This is where the investors would make their money.
But even with the promise that the government wouldn’t have to cover any initial costs, the Utah Legislature showed little interest in backing the deal. A 2013 bill that would have allowed the state to enter into a social impact bond with Goldman Sachs died in the Senate.
Supporters knew that every year delayed was another year Utah children lost out on the benefits of pre-K.
So they decided not to wait for the state to agree to pay back investors’ principal and interest. Advocates found a way to do it themselves.
Proof of concept
The United Way made a deal with investors, who pledged $7 million to fund five cohorts of children to attend high-quality preschool. Cohort 1 would have 600 children, 750 children each in Cohorts 2 and 3, and 1,000 for cohorts 4 and 5. Goldman Sachs put up $4.6 million and J.B. Pritzker, now the governor of Illinois, committed $2.4 million.
“The United Way board voted unanimously to put up capital as a proof of concept to show the Legislature that, actually, you can structure this kind of deal, that there were interested investors,” Garbe said.
The board committed $1 million as repayment for the first cohort of children.
Rep. Ben McAdams, then the newly-elected Democratic mayor of Salt Lake County, was on the United Way board and hoped to persuade the Salt Lake County Council to also back the project.
The first hurdle, he said, was understanding that even if the program was successful, the county would not see immediate savings. This would be a long-term investment.
“We had five Republicans, four Democrats on the council, and we explained how we would be a downstream beneficiary because we fund a lot of the juvenile justice, after-school programs, criminal justice,” McAdams said. “County government, social services are what we do. Investing in early years and preventing harm rather than trying to Band-Aid it after it’s happened is really kind of the goal.”
Ultimately, the council voted to provide $350,000 to the repayment fund.
The collaboration reached beyond finding funding.
Nonprofit Voices for Utah Children provided structuring, research and analytical support; Utah State University administered pre- and post-assessments for the children in the cohort and developed an evaluation report and determined cost avoidance; the Park City Community Foundation provided an independent bank account to hold repayment funds; and the United Way also oversaw the program, contracted and managed payments with providers and reported to investors.
The first group, known as Cohort 1, was made up of 600 low-income 3- and 4-year-olds who attended high-quality pre-K during the 2013-2014 school year. In the initial evaluation, 109 4-year-olds tested as high-risk for needing special education. They were the group that would determine payout for investors, depending on how many didn’t require remedial education starting in kindergarten.
According to the United Way, total savings in the first year for Cohort 1 was $281,556, based on the state’s special education funding add-on of $2,607 per child. Only one child from the at-risk group tested as needing special education in kindergarten after going through preschool.
Investors received 95 percent of those savings as a first payment.
Salt Lake County’s early childhood advocates celebrated. The proof of concept had worked, and the program was on its way to receiving state backing from the Legislature the following year.
Experts questioned the program’s metrics and how payment to investors was calculated. Even if early childhood education is as effective as everyone believed, having only one at-risk child out of 109 go on to remedial education seemed too good to be true.
“We’re all happy if Goldman Sachs makes money as long as they are making it with smart investments that make a real difference,” Clive Belfield, an economics professor at Queens College in New York who studies early childhood education, told the New York Times in a 2015 story about the program. “Here they seem to have either performed a miracle, or these kids weren’t in line for special education in the first place.”
The Peabody Picture Vocabulary Test, which was used to assess the children in Salt Lake County, is not usually used to screen for special education, and non-English speakers tend to perform poorly. This in a program where up to 50 percent of the kids come from homes where English is not the primary language.
Utah officials also acknowledged that data was lacking on what would have happened to the students had they not gone through preschool, or the difference between children in the program and a “control group” of similar kids who did not attend preschool.
Ahrens-Terpstra said: “So, there was this balance: Do we go this incredibly perfect, sound route that we think might yield a slightly better financial model or do we go on with what the research says and get kids into high-quality preschool as soon as possible?”
Nonetheless, even if you take the results at face value, it’s a shame the political reality forced Salt Lake County to do this in the first place, said Thomas, with Voices for Utah Children.
“One of the ways to think about is, because private investors front the money, the state wasn’t on the hook if it fails,” she said. “But preschool doesn’t fail. If you know you have a high-quality program, there’s not really risk — of course it succeeded.”
Still, Thomas recognized, the public-private partnership excited some lawmakers about early childhood education. The test run worked: The Utah Legislature agreed to pay investors for the remaining four cohorts. The state now funds preschool itself.
As part of the 2014 bill, the Utah Legislature established the School Readiness Board — made up of appointees from the State Department of Workforce Services and the Utah State Office of Education, business leaders and early childhood education advocates — to divvy up state grants to help public and private preschools increase their quality.
To be truly effective, an early childhood education program must be high-quality, and although there’s a definition in the 2014 legislation — including having an evidence-based curriculum, ongoing professional development for staff, student assessment, class sizes and teacher-to-student ratio — implementation varies, said the United Way’s Garbe.
“Even within those 10 criteria there are different ways of interpreting things and different ways you can measure those things. So we’ve really been focusing on the outcome,” she said.
The importance of the Pay for Success program has been undeniable in getting more of Utah’s economically disadvantaged children into preschool — about 4,100 kids benefited in the initial five investor-funded cohorts — but early childhood education in Salt Lake County has room to grow.
A positive outlook
For the United Way of Salt Lake and other early childhood advocates in the county, Pay for Success was always seen as the first step toward getting kids into preschool.
“None of us are under the illusion that the Pay for Success initiative is going to serve the tens of thousands or so children that aren’t currently in school,” said Ahrens-Terpstra. “It was really to jump-start interest in high-quality early childhood initiatives here in the state, it really was that proof of concept.”
The reaction by lawmakers is very different now than when the United Way approached them in 2013, she said.
“There was no question that we should continue this initiative, now it’s our job to build on it.”
While there’s still a lot to do and progress can’t come soon enough, early childhood education now has many champions and believers in the state, Thomas said.
“More people are talking about it, more of the agencies and advocates are in the same room trying to figure out what a shared vision is, getting ready to tackle this problem of what is high-quality and how do we measure it, can we all invest in it?
“It’s on the cusp of some really strong strides forward,” she said.